Visit vanguard.com or contact your broker to obtain a Vanguard ETF or fund prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

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Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.

I’ve been spending a great deal of time with 80- and 90-year-olds recently. My mom (now in her mid-80s) just moved to a new retirement community, and so it’s been a wonderful opportunity to observe older retirees in a personal way. And it’s given me some time to reflect on what I’m calling the “second half” of retirement.

When you arrive at a typical retirement community (and here I’m referring to independent living, not assisted living or nursing facilities), you encounter a wide range of physical and mental health outcomes. There are 95-year-olds who are fit and still driving. There are 75- and 80-year-olds who are frail and need personal support. Some rarely see the doctor except for routine evaluation, while others are constantly in and out of the hospital.

Another issue is declining mental acuity. Academic studies show that the rate of dementia doubles every five years in retirement, so that by your early 80s, the risk of full-fledged dementia is 3 in 10. And while you may avoid clinical dementia, you may be prone to milder forms of cognitive impairment. Contrast that with those who remain intellectually sharp through their later years.

As I’ve learned from several families, once a loved one moves to a retirement community, it’s common to gradually shift financial decision-making to trusted younger family members. I suspect many of our blog readers have had to create similar arrangements with their aging parents. The risk of course is that the designated individual, armed with limited or full powers of attorney, can mismanage the older person’s finances. It can help if caretakers conduct all responsibilities as transparently and openly as possible.

Often, selling a primary residence accompanies the move to a retirement community. Many of the retired folks I speak to are of two minds: they both regret moving out of their home and are simultaneously relieved they no longer have to deal with the responsibility of homeownership.

There’s a lesson here for those of us who are younger—don’t become too attached to your main residence as you approach retirement. And start thinking about this transition long before you need to, as well as related changes to finances and portfolios.

One issue I’ve been thinking about is how the portfolio allocation problem changes later in retirement. When you’re 60 or 65, it’s easy to think about a retirement that might last several decades or more. Your main objective is creating a regular income stream from the resources you have, and also to provide for some growth in capital to offset the rising cost of living.

Yet by the time you’ve reached your mid-80s, if not sooner, the calculus changes a great deal. Time horizons are dramatically shorter (unless you’re thinking of investing for your heirs and beneficiaries). And the analysis very much depends on your resources, living arrangements, and health circumstances.

If an older parent moves in with children, it’s possible to imagine that demand on resources will decline (e.g., free room and board) until additional care is needed. If you have the resources to move into an independent living retirement community, my own family experience is that the resources needed for retirement rise substantially. That’s not your standard model of income in retirement—boost spending by a third or more when you’re in your 80s.

Similarly, when it comes to financing assisted living or long-term care, there are two alternative paths. Those with substantial resources (e.g., greater than $1 million) will pay exclusively for private care from assets. Yet most other households will first pay for private care from assets, and then, when depleted, sign up for Medicaid, the government program that helps pay a large portion of long-term care expenses. Those of you who have been through this already know another life lesson from the second half of retirement: you need to become very familiar with your state’s Medicaid rules.

In the financial services world, we spend a great deal of time helping individuals accumulate and invest savings, and somewhat less helping them make the transition into retirement. In my own view, our thinking about decisions at much older ages remains pretty ad hoc and largely underdeveloped. As the world’s population continues to age, we need some much deeper thinking on the second half of retirement.

Steve Utkus

Steve Utkus oversees the Vanguard Center for Retirement Research, which studies many aspects of retirement in America—from how individuals start saving and investing in the early part of their careers, to how they prepare for actual retirement, to how they spend down their savings once they’re retired. Steve is particularly interested in behavioral finance—the study of how rational decision-making is influenced by human psychology. His current research interests also include the ways employers design retirement programs, and new developments in retirement in other countries. Steve holds a B.S. from the Massachusetts Institute of Technology and an M.B.A. from the University of Pennsylvania's Wharton School. He began working at Vanguard in 1987 and has served as director of the Center for Retirement Research since 2001. Steve is also a visiting scholar at the Wharton School.

Comments

Cynthia B. | July 7, 2013 3:01 pm

I’m 57, and my husband is 61. We are still both working full time and are about to pay off our home. I am thinking of buying a second home as a vacation place in a 55+communily while we’re still working, and to eventually move in there as we retire. My question is: What are the pros and cons of buying a home in a 55+community as a vacation home?

Paul D. | July 9, 2013 6:29 pm

Cynthia, I am writing this in hopes of providing you with some perspective on 55+ living based only on our own personal experiences. We have owned a house in a 55+ community and have a vacation house in a Florida 55+ community for 7 years. We will move to Florida when my wife’s parents (now living in a nearby CCRC) pass away.

One of the ‘Pros’ is there will probably be many people in your approximate age group living there. A ‘Con’ is there will probably be many who are of an advanced age living there as well. Some 55+ communities consist of condos only, some are individual houses, and some are a mixture. Some have HOA fees that cover all maintenance, painting, insurance, roof and grounds care while others do not, but all 55+ communities have an HOA fee (and covenants). Before moving in, you need to know what this is, what it covers and what the typical annual increase has been. You will also need to determine which type of dwelling will best suit your lifestyle.

Most 55+ communities have many clubs and activities for seniors, a club house, pools, golf course and restaurant. All these come with some sort of cost as nothing is ever really free. A ‘Pro’ to me is the watchful nature of friends you make, reducing the worry about leaving one house empty while away at the other.

If you have two houses, in two states, plan on dealing with two of everything, insurance, maintenance, utilities, etc. unless you get into a community where the HOA fee covers everything.

Bill D. | July 14, 2013 5:11 pm

My wife and I have had a home(3K) in a senior community (FL) since 1999 and don’t regret any of that time. We live like millionaires with all the ammenities provided. We are in a Del Webb community near Ocala. After the builder left, our elected board hired a management company(Leland) who has done a great job of running our place. As of last month we have over 4M in contingency funds and are only paying $121/mo maintenance fee.

Suzanne Y. | August 2, 2013 1:13 pm

Only $121 for the maintenance fee is marvelous. I’ve been looking into move to Florida for many years, but The two factors changed my plan. One was the Hurricane Charlie and other major ones include Catrina, and the other factor is the bugs. One time I got bites from Noseem tiny bugs and I had to go to the emergency.

But I like a retirement community that are reasonable and has a lot of activities, like excersize, pool and maybe cruises etc… Where is this place and how much is it to get in? Suzanne

Cynthia,
I’m not an expert on what’s best for your family, but from my limited experience, there are two types of older age living arrangements. 55+ housing can be simply more convenient—like condo or townhouse living where external landscaping and maintenance are handled by the community. At the other extreme are CCRCs, or continuing care retirement communities, where you can transition from independent living to assisted living to nursing care as needed, with fees increasing as you move. I’d suggest looking at the full spectrum of options.

Elizabeth M. | July 6, 2013 9:12 am

As a nation, we do not have a compassion way to care for our elderly. The wealthy elderly have many options for good care. However, the average American will be required to spend down all their assets, enter completely poverty and rely on Medicaid to pay for their stay in a nursing home or ALF which will not be the best of its kind. The average American who survives into their 85+ yrs relies on an adult child to make their life enjoyable. They are the truly blessed elderly.

Tony V. | July 27, 2013 12:50 am

As a son (51) managing my mohter’s (77) finances while she is in assisted living it can be very stressful and a truly eye opening experience. In one hand, I am managing my own money to prepare for retirement, and since 2011, I have been managing mom’s money while in retirement. Most of the time it is expected and without thanks. After reading this post it really made me feel so much better about how thank full someone is that they have a relative take care of their needs.

Roger K. | July 4, 2013 8:51 pm

What a great forum for the silver haired (and no hair, like me) crowd. Unfortunately “society” keeps telling us (kids, teenagers, young adults, millenials, baby boomerws etc) “we are not responsible” for anything – everything that happens to us is caused by someone or some outside force. Hopefully some of the experiences in this blog will percolate to others to make them realize THEY ARE RESPONSIBLE for their future – tomorrow, next week, next year and in retirement.
Keep blogging.

Janice D. | August 16, 2013 4:39 pm

Gary S. | July 2, 2013 1:51 pm

My in-laws (both in their 80s) had to give up their home to the bank because they were in over their heads and could not afford it anymore. they are living on SS and my father in-laws phone company pension. None of their 6 children were in any financial situation to help them except my wife. Wife and I decided the best situation was to purchase a small home in a 55 and over community, have them pay the taxes, HOV fees and utilities. I am retired at 61 and my wife still works at 60.
We live off of her salary and my pension. I am able to do the upkeep on the in-laws home to keep costs down. My wife will retire in 2-3 years or at least reduce her work hours significantly. At that time things may have changed concerning her parents and we may downsize and move into that same home or another one depending on their health at the time. I wasn’t expecting to have to use some of my retirement savings to support my in-laws, but that just goes to show you how flexible you need to be as YOUR retirement approaches and your parents are still living… Thanks Vanguard for helping me invest.

The notion of having retired parents while being retired yourself is another part of the story, I agree. At my Mom’s own retirement community, I regularly meet residents in their 90s whose visiting children, in their 60s or 70s, are also retired. Such is the nature of things when a family has longevity in its genes. Kudos to you for being prepared and willing to help your family.

Mary Lou P. | July 2, 2013 3:00 pm

Thank you for this comment, and for your commendable devotion to family. You are so right, we simply don’t know ahead of time what we may have to face. I guess it is best simply to save save save and live below our means both before and after we retire.

Jay R. | June 27, 2013 11:24 am

My wife and I are 76 and 77 respectively and live in our mortgage free single story 2200 square foot home with compact grounds and a backyard pool. We have been discussing our next move for several years taking into consideration as many of the pros and cons that we could possibly research keeping in mind the approaching infirmities that are inevitable with age. We both have had experience with our mothers who had moved to retirement and then assisted living facilities and as expensive and comparatively good as these were don’t seem attractive to us. To age in place looks like a less expensive proposition on the surface with visiting and maybe on premises care in the future. While we have sufficient funds so far the investment horizon in the time left for us looks rather bleak and we would like to leave money to our heirs. Vanguard has a mantra of asset allocation…..a truth that requires time that perhaps we do not have. Sad that our leaders have been so irresponsible or even downright corrupt to have punished those of us who have tried to prepare responsibly for that which you have aptly illustrated in your blog.

Ruth R. | June 25, 2013 10:51 am

I would love to see more info on investments for those in the 80’s and 90’s. Some of those in that age range who employ my services as a daily money manager, have annuities. I do not know enough about them to say whether that’s a good idea.

My own sense is that it’s important to keep all of your legal documents up to date—will, any powers of attorney, healthcare proxies, and trust agreements. If your living trust is outdated, you should do what’s necessary to get it in good order.

Robert E. | June 21, 2013 9:08 pm

This is my second comment about this subject. Glad I read have Vanguard ear marked via Google to see everything written about Vanguard. Have invested with Vanguard since 1985. Did not know about Steve Utkus until article popped up on google.

Great article would like to see Steve lead a discussion on a Vanguard webinar. Just like Vanguard has for investing..will call Vanguard to learn how to read his past articles and future writings.

I am 71 wife is 68 and we are trying to made decisions today that we hope will last east 5-10 years if possibly longer…

Robert E. | June 21, 2013 8:16 pm

Mary P. | June 21, 2013 12:20 pm

Steve, could you elaborate on your statement that moving to an independent-living senior community could raise costs by a third? Is it increased housing expense, more discretionary spending, or what? Sounds kind of scary, as it was how I was imagining my own situation in a few years.

I should have said this in the post, but you do have to do your own math and compare prices at different communities. Depending on where you are starting from, your costs could stay the same or perhaps fall. But in our family’s experience, an independent living community was pricier than Mom living alone. But in exchange we also got, besides the services listed in the post above, around-the-clock security, maintenance, and emergency alerts. Some communities are also staffed by a nurse or have a physician on call. And most offer a range of activities, especially important as individuals become more frail and can’t travel independently.

Norma B. | June 30, 2013 8:57 am

Widow age 70 no children. Have wondered about second half of retirement, especially generally accepted age for best time in life to give up personal home. Have been visiting and researching continuing care campuses in NC and SC. Concerned with unknown factor of signing a contract for life with so many variables; i.e, inflation clause, add-ons for assisted living and/or nursing home, population of non-younger retirees. Own residence free and clear with high hurricane probability. Insurance does not cover loss of land, seawall, pier.
Flood and wind insurance continues to climb with each hurricane event.

Would like to see more articles from Vanguard’s Center for Retirement Research on types of living arrangements, pros and cons, for second half of retirement, especially towns geared toward walking for essentials, social availability, and intellectual pursuits.

Anne V. | July 28, 2013 1:41 pm

Norma B, you asked about the “generally accepted age for best time in life to give up personal home.” My husband and I are a little younger than you but we looked into this too after watching parents’ last years of with lingering disability and illness. When we inquired at some CCRCs, they said that 79 was the average age that folks moved in. CCRCs only accept independent living new residents under most circumstances. Obviously, the age 79 average is only an average and much would depend on an individual’s health and health expectations.

Paul D. | June 24, 2013 11:34 am

While I cannot comment on Steve’s experiences, I can relate our own experiences with my wife’s parents. We had planned on their living with us, but they chose instead to move into a Continuing Care facility where they could gradually transition from independent living to full nursing care if needed.

The obvious first expense was buying their own living quarters within the facility (which was not fully covered by the sale of their home). So this was an added expense that had not been anticipated.

In addition to buying their own condo, there is a monthly maintenance fee. This fee covers cleaning their condo, changing their bed linens, telephone, cable TV, facility overhead and a food allowance to provide at least one daily meal each in the facilities dining room (since they are both light eaters, they usually manage a meal in both the ‘bistro’ and the dining room on their allowance). They no longer pay utilities, real estate taxes or home insurance as these are covered by the facility overhead charges in the maintenance fee. This maintenance fee tends to go up about 3 to 4% per year.

As long as they continue to live independently, there are no other real charges except personal care (i.e. hair cuts and beauty shop) but as they need additional services, such as help with dressing or taking their medicines, (or Alzheimer’s) they will be required to pay more for these services as well. More services equals more cost.

This post summarizes many of the key trade-offs. And whether your expenses go up, stay the same, or fall depends on where you started before considering a retirement community. There’s no avoiding doing the math yourself. And based on my limited experience, the fee schedule is exactly as described here. As your need for additional services increases—some assistance with bathing or dressing, or assistance managing medications, and so on—you pay per service and costs rise in that way.

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At Vanguard, we’ve always believed in candid, direct communication with investors. In fact, it’s one of our core principles. In 2009, we created the Vanguard Blog so that we could talk about what’s happening in our industry and in the economy—and hear what’s on the minds of investors like you. More

Visit vanguard.com or contact your broker to obtain a Vanguard ETF or fund prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.